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New Study: Where Self-Directed Real Estate Investors Are Buying Property

Perhaps the biggest advantage self-directed IRAs offer is the ability to invest in what you know. For many Entrust clients, that means real estate. More Entrust clients invest in real estate than in any other asset.

Their reasons for investing in real estate include the desire to diversify their investment portfolios; benefit from long-term, tax-advantaged market value growth; and generate an ongoing revenue stream while they own the asset.

Every year, Entrust produces a report that describes trends and activity among their real estate investors. This article highlights their 2016 real estate purchases.

Where Entrust Clients Bought Real Estate
California, Texas, Colorado, Florida, and Arizona are the top five states where clients bought property in 2016. This has been consistent for several years.

Looking at the list of 12 states where Entrust clients bought real estate, purchases in Missouri increased nearly 4 percent over 2015. And for the first time, clients bought property in Ohio, Tennessee, Indiana, and Washington. California, however, remained the top choice, with one-quarter of all purchases made there.

Taking a broader look at the regional level, purchases in the West actually declined by 7 percent. It may have been that higher prices discouraged investors from buying there. The decline in purchases in the West was more than made up for in increases in the Midwest (up 4 percent) and South (up 5 percent). This may have been the result of investors seeking property in other, less-expensive regional markets.

Where clients buy is closely related to where they live. Floridians and Arizonans, for example, maintained their solid, 100 percent preference for local real estate, and Coloradans increased their in-state purchases by 8 percent, from 72 percent in 2015 to 80 percent in 2016.

Californians (57 percent) and Texans (88 percent) were more willing to buy out of state in 2016 than in 2015. This may have to do with the hot property markets in those two states, with investors looking for better deals a bit farther afield.

What Investors Paid for Real Estate in 2016
A glance at the stock market, unemployment figures, or the business news shows that the U.S. economy is picking up steam. In general, the real estate market is heating up, as well. As a result, Entrust clients paid more in 2016, when the average purchase price was $192,563, compared to 2015 ($177,777 average purchase price).

What Kind of Property Investors Bought
Historically, investors have preferred single-family residences, and that held true in 2016. The number of single-family houses bought increased 7 percent over 2015, from 44 percent to 51 percent. Multi-family residence accounted for just over a quarter (27 percent) of purchases. The big change came in clients buying vacant land; that number increased from 12 percent to 18 percent year-over-year. Commercial real estate purchases declined from 3 percent to 1 percent in 2016.